Industry and Trade in Asia - Free Trade Zone

Running head:INDUSTRY AND TRADE IN ASIA
Industry and Trade in Asia
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Introduction
Free Trade Zone (FTZ) refers to an area particularly designated to promote integration on
an economy with the world economy in terms of elimination of tariff and other trade barriers and
relaxing bureaucratic regulations. The similar institutions also named as Export Processing
Zones (EPZ), Free Zones (FZ), Special Economic Zone (SEZ) and Maquiladora in different
nations. This kind of areas are designed to enhance presence of a nation in the global economy
by attracting foreign investment and new business. Different Middle East countries as Egypt,
Syria and Jordan adapted policy of establishing free trade zones in early 1960s and 1970s. In
UAE first free trade zone was developed in 1980s (Abdouli and Hammami 2017). Dubai
however stands apart since it successfully developed its reputation in the international market
long before establishment of the free trade zones. The essay discusses role played by free trade
zones in UAE to attract foreign direct investment in the country.
Free Trade Zones in UAE
The government of UAE has developed almost 40 free trade zones in the nation. These
free trade zones allow 100 percent ownership of foreign investors and is free from any regulator
tax. Most of these free trade zones are located in Dubai with the state having a total of 23 free
trade zones. Number of free trade zones in Abu Dhabi is 5, that in Ras Al Khaimah is 4 followed
by 3 free trade zones in Sharjah, 1 free trade zone in Ajman and 1 in Umm Al Quwain. If the
foreign investors are to establish business outside free trade zones, then they need local sponsor
and also the ownership is limited up to 49 percent (Shayah and Qifeng 2015). Nearly 80 percent
of oil non-oil export in UAE is originated from UAE. These zones provide investors exemption
from licensing, emiratisation, agency, national ownership and various regulations that are
applicable to custom territories. The first free trade zone in UAE was built in 1980 at Jebel Ali.

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The success of the free trade zone in bringing foreign investment, technological expertise,
growth of export and transshipment became one major activity in the zone. Viewing success of
the free trade zone, other emirates were encouraged to develop similar areas for attracting inward
investment, generation of employment and enhance overall economic development (Fernandez
and Joseph 2016).
Foreign Direct Investment in UAE and role of Free Trade Zones
The advantageous geographical location of UAE between Europe and Asia and the
position of the nation as the Middle East’s cargo traffic center benefits the nation significantly.
The first emirates that developed free trade zone was Dubai. The free zone in Dubai developed at
Jebel Ali has some excellent characteristics in the world. Later on, government established free
trade zones in other emirates in order to make UAE as a global hub of trade in gold bullion,
center for technology and research development and expansion of financial activities (Mosteanu
2019). Within the free trade zones, the nation provides relaxation to foreign investors working in
some specific real estate projects and welcome 100 percent foreign ownership of companies in
the hydrocarbon sector. In addition, UAE also lowered corporate income tax levied on foreign
companies, relaxed the administrative procedure required for administrative approval and made
significant improvement in the access of local investors to the stock market.
Inflow of FDI has played one of the important role in economic development of UAE.
Government of UAE has taken several strategies to reduce dependency of the economy on
revenue generated from oil sector. One such strategy is to encourage foreign direct investment in
the economy. In order to attract FDI government provided several incentives to the foreign
investors through establishment of free trade free trade zones in different emirates (Agha. and

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Khan 2015). In these free trade zones, the government offers various advantages or incentives to
the investors.
Firstly, in the free trade zones 100 percent foreign ownership are allowed. The 100
percent ownership gives the investors freedom to take their own decision and operate
independently. This encourages foreign investors to establish their business in the region.
Secondly, foreign companies are allowed to repatriate full profit and capital. Since the investors
has no need to share profit with the host country they focus on operating business in the host
country as efficiently as in their own country (Al-Shayeb and Hatemi 2016). Thirdly, there is no
minimum limit of capital investment in these zones. The absence of minimum capital investment
restriction gives investors greater flexibility in terms of investment. Fourthly, the free trade zones
offer excellent communication access to the investors. Effective means of communication
enhances business opportunities in these regions. Fifthly, foreign investors in these regions do
not face barriers in the form of currency restriction. Sixthly, foreign companies doing businesses
in the free trade zones can easily receive extended lease (Anwar 2016). Seven, the free trade
zones consist efficient system of transportation. Efficient transport and communication system
facilitate business opportunities. Eight, in the free trade zones, companies get advantage in terms
of access to ready-made warehouse and factories. This saves additional cost of the companies
requires to establish factories and ware-house. Ninth, foreign companies can also enjoy a cost
advantage in terms of the inexpensive and abundant supply of energies. The reduced cost gives
the companies opportunity to earn a higher profit. Tenth, the free trade zones are developed with
excellent infrastructural facilities supportive for business investment. Eleventh, apart from cost
advantages and infrastructural facilities companies enjoy good excellent facilities of
distributions. Twelve, these free trade zones also offer administrative advantages (Dona Cherian